laws against foreign companies

I have known Janet Carmosky for going on a decade now and I’d be willing to stack her China business knowledge up against anyone’s. And not only does she know China business, but she is one of those people who just seems congenatillay incapable of pulling any punches. I am a huge fan of hers, though we certainly do not see eye to eye on everything.

But when Janet says something I always have to listen and she just came out with an article that already has people talking. Janet’s article is in Forbes and it is titled, “Business in China: My Painkillers Aren’t Working Anymore.” To say it starts out strong would be an understatement:

This just in – a Happy New Year note from a friend I’ll call “Hank”, who has lived and worked in Beijing, on and off, since 1983. “Things are hard. The Chinese are (expletive deleted) with American companies here in ways beyond anything I have ever seen.”

That is saying something, because 30 years of working in US-China business has taken Hank into some fairly ugly situations. There was a time when the business landscape in China was nothing but regulatory gray area, and when business plans went well into execution phase before it became clear that they were based on massive misunderstandings. Someone had to figure out what went wrong; ask the questions no one asked before. Fire people, carefully, who were holding hostage the operations; renegotiate deals that took two years to negotiate the first time; track down the holders of fraudulent paper. Headquarters never wanted to know the details. I had to do some of those things. Hank did it more – chasing down bad joint venture partners, bad deals, bad loans. I got death threats once in a while, but I’m pretty sure Hank had bodyguards on speed dial.

Carmosky then goes on to argue that China does not play fair when it comes to foreign companies doing business in China and we should not expect it to play fair any time soon:

We’re stating the fact that, while the board is identical visually, the Chinese are playing chess and we are playing checkers. We need to accept that competition is not between firms (American firms and Chinese firms), but between our firms and China’s government. If the objective is winning, we should teach more of our people the game as it really is being played. Don’t blame the people who do the dirty work for not being team players. The real issue is that head office doesn’t have a team. They have pain killers, denial, and the habit of indulging in the wishful thinking that the Chinese will start acting like us soon, or else…? We’ll get stronger pain kllers, right?

I pretty much have to agree. I say that because I have already received two emails from two of the people I most respect on China’s front lines and both of them say essentially the same thing. They both come from people who have been deeply involved with doing business in China for more than a decade and they both say that Carmosky has completely nailed it and that things have never been so bad for foreign companies in China as right now. They both assert that China is much more concerned about face and about nationalism and about keeping its citizens happy than it is about the few thousand jobs that any given foreign company can provide.

I also keep hearing the same sorts of thing from my firm’s own clients. Just today, I spoke with a very savvy China veteran who contacted us to provide legal assistance to a company in which he is a part owner. During our conversation, he told me that he would never have an American company own a China WFOE outright because that simply presents too easy a target for China.

What I can add to all of this is that we have seen a definite tightening in the enforcement of all sorts of laws against foreign companies. Almost without exception, the foreign companies and foreign individuals getting in trouble in China were skirting Chinese laws at least a little bit. But at the same time, we are seeing foreign companies and foreign individuals taking hits for doing things that nobody much cared about as recently as one year ago. Our lawyers’ response to all of this is to re-emphasize that if you can do business with China without having to do business in China, you should think long and hard about that path.

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About China Law Blog

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.